If you have not already done so, we recommend you read the information on the following page
before reading this page.
What is the difference between expense accounts and internal accounts and how should they work?
NTS is a fund based accounting system. The internal accounts are designed to keep track of how much money has been received and what the money has been designated for.
An internal account is needed for any offering that is taken up on periodic or regular basis. Tithe and Faith Promise are two common offerings that are taken up regularly so we need an internal account for both. Alabaster is an example of an offering that isn't taken up regularly but is typically taken up once or twice a year. Again, we should have an account for this. A love offering is generally a one time offering so an internal account is not needed for it. Generally, churches don't take up an offering for the electric bill, pastor's salary or for the District Allocation. Because offerings are not taken up for these things, internal accounts should not be created for these either.
The only other reason an internal account should be created is if the church is specifically setting aside funds for some specific purpose. One example might be a general savings or rainy day fund. Another example is setting aside funds in order to send the pastor to the General Assembly. In either case, the church may decided to set aside a certain amount of money from the general offering every week or month. Creating an internal account for these things will allow the church to track how much money has been set aside and therefore available for that purpose.
In to help facilite tracking funds, there are internal categories for grouping different monies from different departments together. Many churchs will divide income into 4 basic categories: Church, Sunday School, N.Y.I, and N.M.I. Tithes would fall under the Church Category. Other offerings that are collected may fall under Church or one of the other 3 categories. Faith Promise, for example, would fall under the NMI category.
Within each Internal (or Income) category, there will one or more accounts or funds. Your normal Tithes and Offerings will go into your Church - General Operating account for the normal church expenses. Money contributed for Faith Promise should go into your N.M.I. - Faith Promise Account and contributions for a new building should go into the Church - Building Fund internal account.
Restricted or designated funds should have their own internal account. Creating an internal account will allow the tracking of these funds separate from your normal operating funds.
Internal Accounts, in most cases, will have a corresponding fund in Contributions. The opposite is also true. You will have an internal account for most, but not necessarily all, contribution funds. When you deposit money, each Contribution Fund is deposited into it's corresponding internal account. For information about setting up funds, please see the links below.
Every internal account will not necessarily have a corresponding Contribution Fund. The Tax Withholding internal account is a prime example. Money transferred into this account by payroll is money withheld from employees' checks for taxes. Eventually, this money will be paid to the IRS. Another example would be when your church sets aside money each month for a future expense, such as General Assembly. Instead of collecting an offering for General Assembly expenses, you simply take money out of your tithes and offerings and transfer the money into the General Assembly internal account.
The internal accounts are just a different way of looking at the money contained within all of your bank accounts. Internal accounts are not tied to a specific bank account and neither are bank accounts tied to specific internal accounts.
Many times a church will set up a separate savings account for things such as a building fund. This can cause confusion if money is not properly transferred from the checking account to the savings account. The internal account Building Fund, and the Building Fund Savings account will not have the same balance unless the money is properly accounted for.
The following example should help you understand how internal accounts work.
Let's say that your church has two bank accounts, one checking account and a building fund savings account. The current balance of the Checking account is $5,000.00 and the Savings account has a balance of $15,000.00. All together you have $20,000. Of the $5000.00 in the checking account, $3800 is regular tithes, and $850.00 was collected for Faith Promise. The remaining $350 is money received for the Building Fund, but deposited into the checking account instead of the Savings account. All $15,000.00 in the savings account is for the Building Fund. Let's now take a look at the balances of our internal and bank accounts.
The Building Fund Savings account only contains $15,000.00. But the total money in the Building Fund Internal Account is $15,350.00. As you can see, some of the money contributed for the Building Fund is in the checking account and some is in the Building Fund savings account. The internal accounts will tell you how much money you have to spend for each purpose. But, as far as the internal accounts are concerned, it does not make a difference what bank account the money is in. It is also important to note that the total balance of all your Internal Accounts will equal the total balance of all the Bank Accounts, as demonstrated above.